Case 2-9 Phar-MorI feel that one major flaw in the Phar-Mor company is the fact that Mickey Monus has full control of the company and could pull off such a giant fraud scam. This is a flawed system in management. There were no checks and balances to keep this fraud from happening. Mickey Monus had so much control of those under him that he convinced them to go along with the fraud. That everything would get better soon and they would not have to worry. The ones that did know about the fraud were in a position to say something but chose not to. If the company were structured better, another manager or high level authority would have caught the fraud being conducted and stopped it in its tracks within management. This in turn leads to the second flaw which is in the corporate governance. There had to have been a separate board of directors that should have had the capability of finding the fraud themselves instead of letting one man hid it from them. The company had audits being made but they were very poorly executed. The audits should have been made at random and more frequently. Only checking four stores out of 300 every once in awhile is not enough. However, the management structure should have been set up better so that they could catch the movement of inventory to the audited stores. For the amount of money that was being lied about way too many people should have caught on to the fraud much sooner. When Cherelstein and Finn both first found out about the fraud it should have been reported to the board of directors. They would have been able to relay the information to the proper places. The code of ethics for a corporation is outlined in the corporate governance and should have been followed. It is clear that they did not take an ethical approach on the matter.

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...Phar-Mor was known as one of the major discount chain retailers in the late 1980’s - early 1990’s. It was founded by Mickey Monus, a gambler in nature, who with the help of senior management was “cooking the books” for years to cover up his loses. The reason why senior management agreed to do this fraud is the belief in unique ability of their leader to fix everything later on. This case is known as one of the biggest accounting frauds in the corporate history of the U.S. This paper will analyze who was affected by this fraud, the motives behind it and what systems of control failed to prevent it.
The major groups that were directly affected are investors, employees, and suppliers. Here we should make the distinction between different types of investors. There are two major types of investors: insiders and outside investors. Insiders are the investors who know the information that is not known publicly and may benefit them in some way. Outside investors are the investors who only know publicly known information. In our case, outside investors was the group that lost the most. On the other hand, insiders, notably Mickey Monus and David Shapiro, were the one that gains millions on IPO. The group who suffered was employees of Phar-Mor. After the scandal was revealed, most of the stores were closed to cover up losses. As a result, thousands of employees got fired. Another party that was...

...intentionally misstating items or omitting important facts from the financial report (Moroney, Campell, & Hamilton, 2011). In Cendant case, the fraud is the accounting department manipulating the revenues to meet the expectation of Wall Street analyst. Than the company can have more opportunities to merge other companies. The affect of the financial reporting fraud will increase sales therefore increase the profit of the company. The financial reporting with fraud will indicate the future earning ability to the share market therefore rising the share price in the exchange market.
c) What types of factors should auditors consider when assessing the likelihood of material misstatements due to fraud?
First the auditors should consider the company economical environment to identify whether there are incentives and pressures to commit a fraud (Moroney, Campell, & Hamilton, 2011). CUC is in the travel service industry which is highly competitive. And CUC's revenue has dramatic doubled in the mid-1990s. To merge the other company, the company's profit has to keep increasing to meet the analysts’ expectation. So the managements of CUC have pressures to create more profit by fraud financial figures.
Second the auditors should look into the financial report whether there are opportunities to perpetrate a fraud. (Moroney, Campell, & Hamilton, 2011) In this case, CUC made various year-end adjustments to the general ledger. Those significant...

...Russi
The Case of Phar-Mor Inc
ACCT-525
October 31, 2012
Case Summary
The case of Phar-Mor Inc was one of the biggest pre-Enron frauds that have been uncovered. Phar-Mor Inc established in 1982 Phar-Mor was a small little known discount drugstore.Phar-Mor became well known for offering medications at a 25-40% discount rate compared to your normal pharmacy store prices. Phar-Mor’s first six years of existence seemingly were fraud free and saw the company grow at a decent pace for their field. By 1987 Phar-Mor almost had 100 stores and was expanding even more rapidly at this point.
The first hint of fraud came up and was discovered being a billing type scheme involving un-received inventory. On top of which it was not policy at the time for Phar-Mor to keep receiving records so there was no way to track it back to the company supposedly shipping in the inventory. The inventory incident ended up costing Phar-Mor seven million dollars and instead of reporting a nine million dollar profit they reported a two million dollar profit.
The other problem that Phar-Mor was suffering from unknown to most of...

...to easily win the case. Along with it being easier for auditor to prove that they acted in good faith rather than they acted with due diligence.
6a) I am not positive how “high-profile” these companies were in their accounting scandal, but the two I found are Bristol-Myers Squibb Company and Crazy Eddie’s Electronics. In the Bristol-Myers scandal, the finance chief and the man who ran the worldwide medicines group misled investors by concealing the extra inventory held by the company’s wholesalers from 1999 to 2001. This resulted in inflated revenues of millions of dollars. Similarly, Crazy Eddie’s Electronics also committed inventory fraud by exaggerating the numbers by millions of dollars for several years before being caught.
6b) Auditors are not able to audit the entire inventory at every store of a company. They select smaller portions at a select number of stores. Also, if a company has someone who used to be an auditor, especially the auditor for your company, you are given an insight to what auditors look for and what/how to hide it from them. It also helps to have so many people involved in the scheme; different people from different levels of management and non-management.
Phar-Mor took advantage of the fact that the auditor was trying to cut the costs of the audit and would not be able to audit the entire inventory. They also had hired their former auditor in their financial department who helped cover up the fraud...

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Case 6
Phar-Mor, Inc.: Accounting Fraud, Litigation, and Auditor Liability
Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
LEARNING OBJECTIVES
After completing and discussing this case, you should be able to
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Identify factors contributing to an environment conducive to accounting fraud . Understand what factors may inappropriately influence the client-auditor relationship and auditor independence Understand auditor legal liability issues related to suits brought by plaintiffs under both statutory and COmmonlaw
INTRODUCTION
In December 1995, the flamboyant entrepreneur Michael "Mickey" Monus, formerly president and chief operating officer (COO) of the deep-discount retail chain PharMor, Inc., was sentenced to 19 years and seven months in prison. Monus was convicted for the accounting fraud that inflated Phar-Mor's shareholder equity by $500 million, resulted in over $1 billion in losses, and caused the bankruptcy of the twenty-eighth largest private company in the United States. The massive accounting fraud went largely undetected for nearly six years. Several members of top management confessed to, and were convicted of, financial-statement fraud. Former members of Phar-Mor management were collectively fined over $1 million, and two former Phar-Mor management employees received prison sentences....

...Kirk Shelton, was reported to have inflated the company's revenue by $500 million over a period of three years. When this report was released to the public, the resulting damage to the market value for the company was approximately $14 billion, with their stock tumbling from a high of $41 down to nearly $12. At the time, this fiasco was the largest case of accounting fraud in the country's history. Mr. Shelton is now serving a 10 year prison sentence. Former CEO Walter Forbes was sentenced to 12 years in prison in 2007. After the accounting scandal was uncovered, Silverman and the Cendant board forced Forbes’ resignation and Silverman assumed the CEO post. Under Silverman, Cendant bounced back from the accounting scandal far outperforming the markets in the early 2000s.
Post-scandal[edit]
Following the fraud debacle, the entire interactive software branch was sold for $1 billion to French publisher Havas in 1998, the same year Havas was purchased by Vivendi.
Early in 2004, Cendant acquired the trademark rights to the Ramada brand in the United States, where there were 819 franchised properties. It also acquired the Canadian rights.[2] On September 15, 2004, Cendant purchased the Ramada International Hotels & Resorts unit from Marriott International. At the time, this was primarily a franchised brand of 204 hotels operating in 26 countries and territories.
On September 29, 2004, Cendant purchased Orbitz for $1.2 billion.[3]
In early 2005,...

...Phar-Mor, Inc was a thriving discount grocery store in the late 1980’s. Phar-Mor was moving product quickly but profit margins were not significant enough to pay the bills. By the early 1990’s, Phar-Mor declared bankruptcy due to fraudulent financial reporting and misappropriation of assets, making it one of the largest frauds in U.S. history. Below, we will use auditing standard AU 316.85 Appendix A in conjunction with the video “How to Steal $500 million” to analyze how incentives/pressures, opportunities, and attitudes/rationalizations allowed for fraud to start and continue at Phar-Mor.
Incentives/Pressures
Annual reoccurring losses due to small margins put pressure on the CFO and controller to divide the overall loss incurred by Phar-Mor upon each of the individual stores, making the dollar amount of loss per store appear much less material than the millions actually incurred. Phar-Mor’s threat of facing bankruptcy was an incentive for the president, CFO, accounting manager and controller to find ways to “cook the books”, such as overstating the price of inventory.
Each character involved had significant incentive and felt a lot of pressure to allow the fraud to continue. At one part in the documentary, the controller for Phar-Mor even stated that he, “feared physical...